State of Emergency in Sri Lanka

Q Why is it in News ?

A President Gotabaya Rajapaksa’s declared a state of Emergency in Sri Lanka.

Q What is Background of Sri Lankan Crisis ?

A 

• Sri Lanka’s economic crisis can be traced to two key developments— the Easter Sunday bombings of 2019 that deterred tourists, and the pandemic since early 2020.
• These events stalled recovery and further drained the economy.
• As it grappled with an unprecedented challenge, the Rajapaksa regime made policy choices that are now proving to be costly.
• It cut the government’s tax revenue substantially and rushed into an ‘organic only’ agricultural policy that will likely slash this year’s harvest by half.
• The weak and debt-ridden economy with the lingering strain of the pandemic, and ill-advised policies accelerated the downward spiral.

Q What were the economic indicators?

 A

• COVID-19 hit Sri Lanka’s key foreign revenue earning sectors hard.
• Earnings from tourism, exports, and worker remittances fell sharply in the last two years.
• But the country could not stop importing essentials, and its dollar account began dwindling.
• Fast draining foreign reserves, a glaring trade deficit, and a related Balance of Payments problem came as crucial signals.
• Colombo’s huge foreign loan obligations and the drop in domestic production compounded the economic strain.

Q When did things begin to worsen?

A 

• The long-simmering crisis made its first big announcement during last August’s food emergency, when supplies were badly affected.
• It was soon followed by fears of a sovereign default in late 2021, which Sri Lanka averted.
• But without enough dollars to pay for the country’s high import bill, the island continued facing severe shortage of essentials — from fuel, cooking gas, and staple foodgrains to medicines.

Q How did the crisis manifest itself on the ground?

 A

• Consumers could not find the most basic things such as petrol, LPG cylinders, kerosene, or milk in the market.
• They spent hours waiting in long queues outside fuel stations or shops.
• Supermarket shelves were either empty or had products with high price tags that most could not afford.
• For instance, the price of one kg of milk powder, a staple item in dairy-deficient Sri Lanka, suddenly shot up to nearly LKR 2000 in March.
• Be it cooking gas, oils, rice, pulses, vegetables, fish, meat, consumers found themselves paying substantially more, or simply had to forego the item.
• The fuel shortage has led to long blackouts — up to 13 hours — across the island.

Q What is the situation now?

A 

• The value of the Sri Lankan rupee has dropped to 300 against a U.S. dollar (and even more than 400 in the black market), putting importers in a difficult spot.
• The government is unable to pay for its import shipments, forcing consignments to leave the Colombo port.
• For the average citizen contending with COVID-induced salary cuts and job losses, the soaring living costs have brought more agony.

Q How did India help mitigate the crisis?

A 

• India has extended $2.4 billion this year.
• China, that is considering a fresh request from Colombo for $2.5 billion assistance, in addition to the $2.8 billion it has extended since the pandemic broke out.
• The government has decided to negotiate an International Monetary Fund programme, while seeking support from other multilateral and bilateral sources.
• But even with all this help, Sri Lanka can barely manage.

Q How has it affected the people?

A 

• Sri Lankans are seething with anger, going by public demonstrations and protests.
• They want the President to step down immediately and the ruling clan to leave the country’s helm.
• They have been agitating in different parts of the country, including near the President’s home.
• Former military man Gotabaya Rajapaksa, who came to power on a huge mandate in 2019, is Sri Lanka’s most unpopular leader today.
• Following the protests near his home, Mr. Rajapaksa said “extremists” were plotting an ‘Arab Spring’ and hence he declared a state of Emergency.